TRUWORTHS INTERNATIONAL LIMITED - Unaudited Group Interim Report for the 26 weeks ended 31 December 2017 and cash dividend declaration

Unaudited Group Interim Report for the 26 weeks ended 31 December 2017 and cash dividend declaration
TRUWORTHS INTERNATIONAL LTD
REGISTRATION NUMBER: 1944/017491/06
JSE CODE: TRU
NSX CODE: TRW
ISIN: ZAE000028296
UNAUDITED GROUP INTERIM REPORT
for the 26 weeks ended 31 December 2017 and cash dividend declaration
KEY FEATURES
Retail sales up at R10.3 billion
Gross margin 52.4%
Operating margin 24.0%
Headline and diluted headline earnings per share down 3%
Net asset value per share up 10%
Interim dividend per share 261 cents
GROUP PROFILE
Truworths International Ltd (the company) is an investment holding and management company listed on
the JSE and the Namibian Stock Exchange. Its principal trading entities, Truworths Ltd and Office
Holdings Ltd, are engaged either directly or through subsidiaries, concessions, agencies or
franchises, in the cash and account retailing of fashion clothing, footwear, related merchandise
and homeware. The company and its subsidiaries (the Group) operate primarily in South Africa and
the United Kingdom, and have an emerging presence in Germany, the Republic of Ireland and other
sub-Saharan African countries.
TRADING AND FINANCIAL PERFORMANCE
In South Africa low economic growth, unemployment at its highest level in 13 years, soft real growth
in household incomes and political uncertainty have all contributed to the challenging trading
conditions experienced by the Group during the 26-week period ended 31 December 2017 (the period
or the current period). Against this backdrop, Group retail sales for the period increased to
R10.3 billion relative to the R10.2 billion reported for the 26-week period ended 25 December 2016
(the prior period). However, compared to the directly corresponding 26-week period of the
2017 financial period (i.e. 4 July 2016 to 1 January 2017) (the comparable prior period) (refer to
note 14), retail sales for the period increased by 1%.
Account sales comprised 50% (2016: 50%) of Group retail sales for the period, with cash sales
growing by 1% and account sales unchanged.
Retail sales for Truworths (being the Group, excluding the UK-based Office segment), increased by
1% to R7.4 billion, with cash sales growing by 3% and account sales unchanged relative to the
prior period. Account sales comprised 69% of these retail sales (2016: 69%). Relative to the
comparable prior period, Truworths retail sales for the current period increased by 2%. Like-for-
like store retail sales decreased by 3%, while product deflation averaged 2% (2016: 16% inflation).
Retail sales for the UK-based Office segment increased in Sterling terms by 1% to £162 million
relative to the prior period's £159 million, but on translation decreased to R2.8 billion from
the prior period's R2.9 billion because of Rand strengthening. Relative to the comparable prior
period, Office retail sales for the current period decreased by 1% in Sterling terms. Product
inflation averaged 4% (2016: 2%).
Group sale of merchandise, which comprises Group retail sales, together with wholesale and
franchise sales and delivery fee income, less accounting adjustments, was unchanged at R10.0 billion.
During the period a net 25 stores were opened across all brands while the retail footprint was
boosted by the acquisition of Loads of Living, which added a further 13 stores. This resulted in an
increase in trading space of 5% (Truworths 5% and Office 1%). At the end of the period the Group had
977 stores (including 39 concession outlets) (2016: 939 stores, including 40 concession outlets).
Divisional sales
26 weeks to Change on Change on
26 weeks to 1 Jan 2017 prior 26-week prior 26-week
26 weeks to 25 Dec 2016 (comparable period to period to
31 Dec 2017 (as reported) weeks)@ 25 Dec 2016 1 Jan 2017
Rm Rm Rm % %
Office~ 2 848 2 859 2 929 - (3)
Truworths ladieswear 2 066 2 144 2 094 (4) (1)
Truworths menswear‡ 2 070 2 052 2 021 1 2
Identity 1 189 1 193 1 168 - 2
Truworths designer emporium* 780 790 783 (1) -
Truworths kids emporium# 630 585 572 8 10
Other^ 706 623 622 13 14
Group retail sales 10 289 10 246 10 189 - 1
Wholesale and franchise sales
and delivery fee income 54 62 62 (13) (13)
Accounting adjustments (note 4) (295) (272) (272) 8 8
Sale of merchandise 10 048 10 036 9 979 - 1
YDE agency sales 143 155 (8)
@ Divisional sales for the comparable prior period (i.e. 4 July 2016 to 1 January 2017)
(refer to note 14).
~ The current period Office sales include Boxing Day trading, whereas this fell into the
second half of the 2017 financial period.
‡ Truworths Man, Uzzi, Daniel Hechter Mens and LTD Mens.
* Daniel Hechter Ladies, Ginger Mary, Glamour, LTD Ladies and Earthaddict.
# LTD Kids, Earthchild and Naartjie.
^ Cellular, Truworths Jewellery, Cosmetics, Office London and Loads of Living.
The Group's gross margin was stable at 52.4% (2016: 52.6%). Excluding Office, the Group's gross
margin increased to 55.5% (2016: 55.0%).
Trading expenses increased 1% to R3.7 billion (2016: R3.7 billion) and constituted 37.0% of sale
of merchandise (2016: 36.5%), which reflects the positive impact of management's cost-cutting
initiatives over the past six months. The increases in occupancy costs and other operating costs
were partially off-set by a decrease in trade receivable costs. Refer to Account Management below
for further details on trade receivable costs. Trading expenses are not being compared to the
comparable prior period as they are incurred monthly rather than weekly.
Interest received decreased 1% to R713 million (2016: R718 million) due to the decline in gross
trade receivables from R6.4 billion to R6.3 billion as well as a 25 basis points decrease in the
South African repo rate since July 2017. Operating profit decreased 3% to R2.4 billion while the
operating margin decreased to 24.0% from 24.9% owing to the fact that the gross profit remained
unchanged, while trading expenses increased marginally. Excluding Office, the operating margin
decreased to 29.7% (2016: 30.0%). Finance costs have decreased by 8% compared to the prior period
mainly due to the settlement of a portion of the Group's long-term borrowings.
Headline earnings per share (HEPS) and diluted HEPS decreased 3% to 379.8 cents and 379.3 cents
respectively compared to the prior period's HEPS of 392.6 cents and diluted HEPS of 391.9 cents.
Relative to the comparable prior period (refer to note 14), HEPS and diluted HEPS decreased 2%.
An interim dividend of 261 cents per share has been declared (2016: 270 cents per share),
maintaining the dividend cover at 1.5 times.
FINANCIAL POSITION
The Group's financial position remains strong, with net asset value per share increasing by 10% to
2 415.9 cents since the prior period-end (2016: 2 200.0 cents).
Inventories decreased to R1.9 billion at the end of the period (2016: R2.1 billion) and inventory
turn increased to 4.9 times (2016: 4.6 times). This is largely as a result of improved stock
management in both Truworths and Office. Excluding the inventory of Office, gross inventory decreased
6% and inventory turn increased to 5.7 times (2016: 5.4 times).
Interest-bearing borrowings at the period-end decreased to R3.2 billion from R4.1 billion at the
comparable period-end (June 2017: R3.8 billion), mainly as a result of scheduled and additional
loan repayments during the period.
Trade and other payables decreased to R1.8 billion at the end of the period (2016: R2.5 billion)
because creditor payments for December 2017 were made before the period-end compared to
December 2016 when payments were made after the period-end.
CAPITAL MANAGEMENT
During the period the Group generated R1.8 billion in cash from operations and this funded dividend
payments (R790 million), capital expenditure (R226 million) and loan repayments (R597 million).
Scheduled and additional loan repayments, cash dividend payments (no scrip dividend alternative
offered) and higher tax payments resulted in cash and cash equivalents decreasing 30% to R2.3 billion
at the end of the period.
The cash realisation rate, which is a measure of how profits are converted into cash, was 100% for
the period (2016: 137%). The average rate for the last five full financial years is 88%.
Net debt to equity remained at 8% compared to the prior period-end (June 2017: 18%).
ACCOUNT MANAGEMENT
Gross trade receivables in respect of the debtors book (Truworths, Identity and YDE) declined to
R6.3 billion from R6.4 billion at the prior period-end. The decline in the book is mainly attributable
to the improved collections experience since the prior period-end. The percentage of active account
holders able to purchase at the end of the period increased to 87% compared to 85% at the prior
period-end and 82% at June 2017, while overdue balances as a percentage of gross trade receivables
improved to 10% from 11% at the prior period-end.
The doubtful debt allowance as a percentage of gross trade receivables has decreased from 12.9% in
the prior period to 12.4% as a result of an improvement in the quality of the book. Trade receivable
costs decreased 9% to R653 million (2016: R721 million), resulting from increases of 1% in each of
net bad debts and collection and other trade receivable costs, off-set by the decrease in the
allowance for doubtful debts referred to above.
Opened accounts as a percentage of applications increased to 24% compared to the prior period's 22%,
while the Group's active account base declined 1% to 2.6 million accounts. This continued decline
is a consequence of the onerous administrative burden introduced by the credit affordability
assessment regulations which came into force in South Africa in September 2015, requiring customers
to produce documentary evidence of income.
Over the last two years the Group has implemented various account granting strategies, updated its
information systems and added efficiencies to its processes in an attempt to mitigate the impact of
these regulations. The Group refines these strategies on an ongoing basis to better manage the
effects of these regulations.
The Group, together with two other major JSE-listed retailers, initiated legal action in June 2016
against the National Credit Regulator and the Department of Trade and Industry to have these
regulations reviewed. The court case was heard during August 2017 with judgment pending.
The Group uses accounts as an enabler of sales to customers in the mainstream middle-income market,
as opposed to operating a financial services business. No fees are charged to customers, such as
initiation fees, club fees, collection fees or magazine fees, except for an annual account service
fee of R28. Financial service income (refer to note 4) only constitutes 0.3% of sale of merchandise.
UPDATE ON THE LOADS OF LIVING ACQUISITION
The Group announced at its 2017 annual results presentation on 18 August 2017 that it had acquired
Loads of Living, a South African homeware chain, subject to Competition Commission approval.
The Competition Commission approved the transaction unconditionally on 14 November 2017. In terms
of the purchase agreement the Group therefore acquired the business and consolidated its results
with effect from 31 October 2017.
BOARD APPOINTMENTS
Mr Hans Hawinkels and Ms Maya Makanjee have been appointed as independent non-executive directors
of the company with effect from 22 February 2018.
Mr Hawinkels has degrees in engineering, commerce and business administration and has cross-industry
experience in senior operational, executive and C-suite roles over more than 40 years. He is
currently a consultant to a major South African liquor production and distribution business.
Ms Makanjee has Bachelor's degrees in commerce and fine arts and a Master's degree in business
leadership, and has had involvement at executive and director level in a number of major corporates
in South Africa over the past 25 years, including roles in strategic planning, human resources,
corporate affairs and transformation. Most recently she was the executive director of corporate
affairs at a major mobile telecommunications company. Currently she is a non-executive director of
Mpact Ltd, Tiger Brands Ltd and AIG Ltd.
CHANGES TO BOARD COMMITTEE COMPOSITION
During the period the following changes to the board committees took place:
Audit committee: Mr Roddy Sparks, an independent non-executive director of the company, has assumed
the position as chairman, replacing Mr Mike Thompson, who remains a member of this committee,
together with Mr Rob Dow.
Remuneration committee: Mr Tony Taylor, an independent non-executive director, has been appointed
as an additional member of this committee.
Risk committee: In line with King IV recommendations, Messrs Roddy Sparks and Hilton Saven,
both independent non-executive directors of the company, have been appointed to this committee.
OUTLOOK
South Africa: Truworths
Economic prospects in South Africa are looking favourable, partially due to the recent political
changes. However, the recessionary environment continues to put pressure on the disposable income
of consumers, exacerbated by the increase in the VAT rate to 15% with effect from 1 April 2018.
Furthermore, Truworths has experienced product deflation and an improvement in the performance of the
debtors book, and has focused on cost containment.
Retail sales growth for the second half of the 2018 financial period will benefit from the lower base
recorded in the second half of the 2017 financial period. No product inflation is anticipated in the
second half.
Truworths retail sales for the first seven weeks of the second half of the 2018 financial period
are unchanged compared to the directly corresponding seven-week period in the 2017 financial period
(i.e. 2 January 2017 to 19 February 2017).
United Kingdom: Office
The trading environment in the United Kingdom remains tough, with inflationary pressure, interest
rates expected to rise and a degree of political uncertainty.
Office retail sales for the first seven weeks of the second half of the 2018 financial period
decreased by 4% in Sterling compared to the directly corresponding seven-week period in the
2017 financial period (i.e. 2 January 2017 to 19 February 2017).
Group: Trading space
The board remains committed to investing for longer-term growth, with trading space planned to
increase by approximately 2.7% for the 2018 financial period (comprising 2.8% in Truworths (excluding
the trading space of the recently acquired Loads of Living), and 1.7% in Office), and by approximately
2% to 3% in the 2019 financial period (Truworths 2% to 3% and Office 2%).
H Saven MS Mark
Chairman Chief Executive Officer
INTERIM DIVIDEND
The directors of the company have resolved to declare a gross cash dividend from retained earnings
in respect of the 26-week period ended 31 December 2017 in the amount of 261 South African cents
(2016: 270 South African cents) per ordinary share to shareholders reflected in the company's
register on the record date, being Friday, 16 March 2018.
The last day to trade in the company's shares cum dividend is Tuesday, 13 March 2018. Consequently
no dematerialisation or rematerialisation of the company's shares may take place over the period
from Wednesday, 14 March 2018 to Friday, 16 March 2018, both days inclusive. Trading in the
company's shares ex dividend will commence on Wednesday, 14 March 2018. The dividend is scheduled
to be paid in South African Rand (ZAR) on Monday, 19 March 2018.
Dividends will be paid net of dividends tax (currently 20%), to be withheld and paid to the
South African Revenue Service. Such tax must be withheld unless beneficial owners of the dividend
have provided the necessary documentary proof to the relevant regulated intermediary (being a broker,
CSD participant, nominee company or the company's transfer secretaries Computershare Investor
Services (Pty) Ltd, PO Box 61051, Marshalltown, 2107, South Africa) that they are exempt therefrom,
or entitled to a reduced rate, as a result of a double taxation agreement between South Africa and
the country of tax domicile of such owner.
The withholding tax, if applicable at the rate of 20%, will result in a net cash dividend per
share of 208.8 South African cents. The company has 442 059 439 ordinary shares in issue on
22 February 2018. In accordance with the company's memorandum of incorporation the dividend will
only be paid by electronic funds transfer, and no cheque payments will be made. Accordingly,
shareholders who have not yet provided their bank account details should do so to the company's
transfer secretaries.
The directors have determined that gross dividends amounting to less than 2 000 South African
cents, due to any one shareholder of the company's shares held in certificated form, will not be
paid, unless otherwise requested in writing, but the net amount thereof will be aggregated with
other such net amounts and donated to a charity to be nominated by the directors.
By order of the board
C Durham
Company Secretary
Cape Town
22 February 2018
One Capital
JSE Sponsor
Merchantec Capital Namibia
NSX Sponsor
CONDENSED GROUP STATEMENTS OF FINANCIAL POSITION
Note at 31 Dec at 25 Dec at 2 Jul
2017 2016 2017
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets 6 515 6 614 6 559
Property, plant and equipment 1 674 1 632 1 637
Goodwill 1 529 1 563 1 552
Intangible assets 2 976 3 064 3 037
Derivative financial assets 11 13 11
Available-for-sale assets 25 30 29
Loans and receivables 64 65 64
Deferred tax 236 247 229
Current assets 10 107 11 240 9 580
Inventories 1 944 2 092 1 916
Trade and other receivables 5 697 5 702 5 256
Prepayments 169 162 338
Cash and cash equivalents 2 297 3 284 2 055
Tax receivable - - 15
Total assets 16 622 17 854 16 139
EQUITY AND LIABILITIES
Total equity 10 386 9 440 9 450
Share capital and premium 706 706 706
Treasury shares 6 (901) (961) (939)
Retained earnings 11 054 10 224 10 212
Non-distributable reserves (473) (529) (529)
Non-current liabilities 3 492 4 848 4 709
Interest-bearing borrowings 7 2 532 3 743 3 641
Deferred tax 445 481 454
Put option liability 304 397 400
Straight-line operating lease obligation 149 160 157
Post-retirement medical benefit obligation 58 62 53
Leave pay obligation 4 5 4
Current liabilities 2 744 3 566 1 980
Trade and other payables 1 781 2 453 1 634
Interest-bearing borrowings 7 637 317 144
Provisions 113 78 111
Contingent consideration obligation - 60 62
Derivative financial liabilities 61 13 6
Tax payable 152 645 23
Total liabilities 6 236 8 414 6 689
Total equity and liabilities 16 622 17 854 16 139
Number of shares in issue (net of treasury shares) (millions) 429.9 429.1 429.4
Net asset value per share (cents) 2 415.9 2 200.0 2 200.7
Key ratios
Return on equity* (%) 33 38 31
Return on capital* (%) 48 55 46
Return on assets* (%) 29 29 26
Inventory turn* (times) 4.9 4.6 4.5
Asset turnover* (times) 1.2 1.1 1.1
Net debt to equity (%) 8.4 8.2 18.3
Net debt to EBITDA* (times) 0.2 0.1 0.4
* Ratios for December have been annualised.
CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME
Note 26 weeks 26 weeks 53 weeks
to 31 Dec to 25 Dec to 2 Jul
2017 2016 2017
Unaudited Unaudited % Audited
Rm Rm change Rm
Revenue 4 10 912 10 920 - 19 858
Sale of merchandise 4 10 048 10 036 - 18 065
Cost of sales (4 783) (4 758) (8 562)
Gross profit 5 265 5 278 - 9 503
Other income 4 151 156 291
Trading expenses (3 713) (3 665) 1 (7 086)
Depreciation and amortisation (192) (199) (389)
Employment costs (1 068) (1 062) (2 094)
Occupancy costs (1 135) (1 079) (2 155)
Trade receivable costs (653) (721) (1 209)
Other operating costs (665) (604) (1 239)
Trading profit 1 703 1 769 (4) 2 708
Interest received 4 713 718 (1) 1 478
Dividends received 4 - 10 24
Operating profit 2 416 2 497 (3) 4 210
Finance costs (133) (145) (295)
Profit before tax 2 283 2 352 (3) 3 915
Tax expense (627) (645) (1 049)
Profit for the period 1 656 1 707 (3) 2 866
Attributable to:
Equity holders of the company 1 632 1 678 2 827
Holders of the non-controlling interest 24 29 39
Profit for the period 1 656 1 707 2 866
Other comprehensive losses to be reclassified to
profit or loss in subsequent periods (71) (632) (652)
Movement in foreign currency translation reserve (71) (633) (649)
Fair value adjustment on available-for-sale
financial instruments - 1 (3)
Other comprehensive income not to be reclassified
to profit or loss in subsequent periods - - 9
Re-measurement gains on defined benefit plans - - 9
Other comprehensive losses for the period, net of tax (71) (632) (643)
Attributable to:
Equity holders of the company (62) (560) (569)
Holders of the non-controlling interest (9) (72) (74)
Other comprehensive losses for the period, net of tax (71) (632) (643)
Total comprehensive income for the period 1 585 1 075 2 223
Attributable to:
Equity holders of the company 1 570 1 118 2 258
Holders of the non-controlling interest 15 (43) (35)
Total comprehensive income for the period 1 585 1 075 2 223
Basic earnings per share (cents) 379.8 392.6 (3) 659.9
Headline earnings per share (cents) 5 379.8 392.6 (3) 662.0
Diluted basic earnings per share (cents) 379.3 391.9 (3) 658.8
Diluted headline earnings per share (cents) 5 379.3 391.9 (3) 660.9
Weighted average number of shares (millions) 429.7 427.4 428.4
Diluted weighted average number of shares (millions) 430.3 428.2 429.1
Key ratios
Gross margin (%) 52.4 52.6 52.6
Trading expenses to sale of merchandise (%) 37.0 36.5 39.2
Trading margin (%) 16.9 17.6 15.0
Operating margin (%) 24.0 24.9 23.3
CONDENSED GROUP STATEMENTS OF CHANGES IN EQUITY
Holders
Share Non- Equity of the
capital distribut- holders non-con-
and Treasury Retained able of the trolling Total
premium shares earnings reserves company interest equity
Rm Rm Rm Rm Rm Rm Rm
2017
Balance at the beginning
of the period 706 (939) 10 212 (529) 9 450 - 9 450
Total comprehensive income
for the period - - 1 632 (62) 1 570 15 1 585
Profit for the period - - 1 632 - 1 632 24 1 656
Other comprehensive losses
for the period - - - (62) (62) (9) (71)
Cash dividends - - (790) - (790) - (790)
Utilisation of treasury shares
in respect of the exercise of
options in terms of the 1998 share
option scheme - 19 - (11) 8 - 8
Premium on shares vested in terms
of the 2012 restricted share scheme - 19 - (19) - - -
Share-based payments - - - 38 38 - 38
Acquisition of non-controlling
interest - - - 1 1 (2) (1)
Movement in put option liability - - - 109 109 (13) 96
Balance at 31 December 2017 706 (901) 11 054 (473) 10 386 - 10 386
2016
Balance at the beginning
of the period 706 (882) 8 903 (102) 8 625 - 8 625
Total comprehensive income
for the period - - 1 678 (560) 1 118 (43) 1 075
Profit for the period - - 1 678 - 1 678 29 1 707
Other comprehensive losses
for the period - - - (560) (560) (72) (632)
Cash dividends - - (357) - (357) - (357)
Shares repurchased - (101) - - (101) - (101)
Premium on shares vested in terms
of the 2012 restricted share scheme - 22 - (22) - - -
Share-based payments - - - 33 33 - 33
Movement in put option liability - - - 122 122 43 165
Balance at 25 December 2016 706 (961) 10 224 (529) 9 440 - 9 440
Cents per share: 2017 2016
Cash dividend declared in
respect of the period 261 270
CONDENSED GROUP STATEMENTS OF CASH FLOWS
Note 26 weeks 26 weeks 53 weeks
to 31 Dec to 25 Dec to 2 Jul
2017 2016 2017
Unaudited Unaudited Audited
Rm Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flow from trading and cash EBITDA* 1 993 2 005 3 189
Working capital movements (156) 211 (151)
Cash generated from operations 1 837 2 216 3 038
Interest received 710 715 1 473
Dividends received - 10 24
Finance costs (129) (158) (292)
Tax paid (486) (209) (1 256)
Cash inflow from operations 1 932 2 574 2 987
Cash dividends paid (790) (357) (1 527)
Net cash from operating activities 1 142 2 217 1 460
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment to expand operations (171) (174) (341)
Acquisition of plant and equipment to maintain operations (41) (70) (90)
Acquisition of computer software (14) (17) (37)
Proceeds on disposal of shares 8 - 8
Net acquisition of business (8) - -
Premiums paid to insurance cell - - (12)
Amounts received from insurance cell 4 2 3
Loans and receivables repaid - 13 14
Loans advanced (2) - -
Acquisition of non-controlling interest (1) - -
Payment of contingent consideration obligation (62) (42) (42)
Net cash used in investing activities (287) (288) (497)
CASH FLOWS FROM FINANCING ACTIVITIES
Shares repurchased by subsidiaries - (101) (101)
Borrowings repaid 7 (597) (62) (324)
Contributions to post-retirement medical benefit plan asset - - (3)
Net cash used in financing activities (597) (163) (428)
Net increase in cash and cash equivalents 258 1 766 535
Cash and cash equivalents at the beginning of the period 2 055 1 592 1 592
Net foreign exchange difference (16) (74) (72)
CASH AND CASH EQUIVALENTS AT THE REPORTING DATE 2 297 3 284 2 055
Key ratios
Cash flow per share (cents) 449.6 602.2 697.2
Cash equivalent earnings per share (cents) 451.5 440.1 766.3
Cash realisation rate (%) 100 137 91
* Earnings before interest received, finance costs, tax, depreciation and amortisation.
SELECTED EXPLANATORY NOTES
1 STATEMENT OF COMPLIANCE
The condensed Group interim financial statements for the 26-week period ended 31 December 2017
(interim report) have been prepared in compliance with International Financial Reporting
Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council,
IAS 34: Interim Financial Reporting, the Companies Act (71 of 2008, as amended) of South Africa
and the Listings Requirements of the JSE.
The interim report does not include all the information and disclosures required in the annual
financial statements, and should be read in conjunction with the Group's annual financial
statements as at 2 July 2017.
The information contained in the interim report has neither been audited nor reviewed by the
Group's external auditors. The interim report has been prepared under the supervision of
Mr DB Pfaff CA(SA), the Chief Financial Officer of the Group.
2 BASIS OF PREPARATION
The interim report has been prepared in accordance with the going concern and historical cost
bases, unless otherwise indicated. The accounting policies are applied consistently throughout
the Group. The presentation and functional currency used in the preparation of the interim
report is the South African Rand (ZAR or Rand) and all amounts are rounded to the nearest
million, unless otherwise indicated.
3 ACCOUNTING POLICIES AND METHODS OF COMPUTATION
3.1 The accounting policies and methods of computation applied in the preparation of the
interim report are in terms of IFRS and consistent with those applied in the preparation
of the Group's annual financial statements for the period ended 2 July 2017, with the
exception of the amendment to IAS 7: Statement of Cash Flows - Disclosure, which is
effective from the current reporting period and requires disclosures that enable investors
to evaluate changes in liabilities arising from financing activities, including changes
arising from cash flows and non-cash changes.
Other IFRS, amendments and International Financial Reporting Interpretations Committee
(IFRIC) interpretations not applicable to Group activities
Various other new and amended IFRS and IFRIC interpretations have been issued and are
effective, however they are not applicable to the Group's activities during the period.
3.2 IFRS, amendments and IFRIC interpretations issued but not yet effective
The following IFRS and amendments, that are relevant to the Group, have been issued but
are not effective for the period under review. The Group will adopt these no later than
their effective dates, to the extent that they are applicable to its activities:
Amendments to IFRS 2: Share-based Payments - Classification and Measurement
Effective for annual periods beginning on or after 1 January 2018
The amendments contain requirements on the accounting for cash-settled share-based payment
transactions that include a performance condition, classification of share-based payment
transactions with net settlement features and accounting for modifications of share-based
payment transactions from cash-settled to equity-settled. The impact of these amendments
has been considered and will not be material to the Group.
IFRS 9: Financial Instruments - Recognition and Measurement
Effective for annual periods beginning on or after 1 January 2018
Classification of the Group's financial assets and liabilities has been undertaken in
accordance with IFRS 9, however the quantitative impact of the expected credit loss model
on the financial statements is under consideration by the Group. The Group will adopt the
standard on 2 July 2018, being the commencement date of its next financial period, and it
will be applied prospectively.
IFRS 15: Revenue Recognition
Effective for annual periods beginning on or after 1 January 2018
The impact of this standard has been considered and the only expected impact relates to
the recognition of the sales returns provision. Currently a net adjustment is made to sale
of merchandise for the gross profit impact of sales expected to be returned. IFRS 15
requires sale of merchandise to be adjusted for the selling price of the expected returns
and cost of sales to be adjusted for the cost of such returns. The changes resulting from
the adoption of this standard are not expected to have any impact on profits.
IFRS 16: Leases - Recognition and Measurement
Effective for annual periods beginning on or after 1 January 2019
The Group has numerous leases that will, in terms of the new standard, be recognised in
the statement of financial position. The standard is effective for the financial period
commencing on 1 July 2019. The quantitative impact is under consideration by the Group
and the Group is investigating whether it will transition using the full retrospective
approach or the modified retrospective approach.
3.3 Basis of consolidation of financial results
The condensed Group interim financial statements comprise the interim financial statements
of the company and its subsidiaries, and are prepared using uniform accounting policies
for like transactions and other events in similar circumstances.
26 weeks 26 weeks 53 weeks
to 31 Dec to 25 Dec to 2 Jul
2017 2016 2017
Unaudited Unaudited % Audited
Rm Rm change Rm
4 REVENUE
Sale of merchandise 10 048 10 036 - 18 065
Retail sales 10 289 10 246 18 472
Accounting adjustments* (295) (272) (518)
Delivery fee income 26 26 53
Wholesale sales 25 30 50
Franchise sales 3 6 8
Interest received 713 718 (1) 1 478
Trade receivables interest 642 668 1 366
Investment interest 71 50 112
Other income 151 156 (3) 291
Commission 70 71 137
Financial services income 32 32 54
Display fees 28 34 63
Lease rental income 13 14 27
Insurance recoveries 4 1 2
Other 3 3 6
Royalties 1 1 2
Dividends received from insurance business arrangements - 10 24
Total revenue 10 912 10 920 - 19 858
* Accounting adjustments made in terms of IFRS and generally accepted accounting practice relating
to promotional vouchers, staff discounts on merchandise purchased, cellular retail sales,
notional interest on non-interest-bearing trade receivables and the sales returns provision.
26 weeks 26 weeks 53 weeks
to 31 Dec to 25 Dec to 2 Jul
2017 2016 2017
Unaudited Unaudited Audited
Rm Rm Rm
5 RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS
Profit for the period, attributable to equity holders of
the company 1 632 1 678 2 827
Adjusted for:
Impairment of fixed and financial assets - - 9
Headline earnings 1 632 1 678 2 836
6 TREASURY SHARES
Opening balance 939 882 882
Shares repurchased in accordance with the general
repurchase programme - 101 101
Utilisation of treasury shares in respect of the exercise
of options in terms of the 1998 share option scheme (19) - (15)
Premium on shares vested under the 2012 restricted share scheme (19) (22) (29)
Closing balance 901 961 939
7 INTEREST-BEARING BORROWINGS
Opening balance, comprising: 3 785 4 408 4 408
Non-current portion of interest-bearing borrowings 3 641 4 042 4 042
Current portion of interest-bearing borrowings 144 366 366
Borrowings repaid (597) (62) (324)
Foreign exchange movements (23) (290) (314)
Amortisation of arrangement fees 4 4 12
Finance charges accrued - - 3
Closing balance, comprising: 3 169 4 060 3 785
Non-current portion of interest-bearing borrowings 2 532 3 743 3 641
Current portion of interest-bearing borrowings 637 317 144
8 BUSINESS COMBINATIONS
Acquisition of Loads of Living
With effect from 31 October 2017 the Group acquired Loads of Living, a linen and houseware
retailer with 13 stores in South Africa, as a going concern. The purchase consideration was
provisionally allocated to the identifiable assets and liabilities of the business. Due to the
short period between the acquisition date and reporting date, the Group has applied provisional
accounting in respect of all assets acquired and liabilities assumed. The purchase price allocation
is subject to further review for a period of up to one year from the acquisition date. Additional
identifiable assets (including trademarks) and liabilities will be recognised upon completion
of the purchase price allocation and the process of valuing these assets and liabilities,
with a corresponding reduction or increase in goodwill. A qualitative description of the
factors comprising goodwill will be disclosed once the purchase price allocation is complete.
9 SEGMENT REPORTING
The Group's reportable segments have been identified as the Truworths and Office business units.
The Truworths business unit comprises all the retailing activities conducted by the Group in
Africa through which the Group retails fashion apparel comprising clothing, footwear and other
fashion products as well as homeware. Included in the Truworths business unit is the YDE
business unit which comprises the agency activities through which the Group retails clothing,
footwear and related products on behalf of emerging South African designers, as well as the
Loads of Living business unit which retails homeware. The Office business unit comprises the
footwear retail activities conducted by the Group through stores, concession outlets and an
e-commerce channel in the United Kingdom, Germany and the Republic of Ireland.
Management monitors the operating results of the business segments separately for the purpose
of making decisions about resources to be allocated and of assessing performance. Segment
performance is reported on an IFRS basis and evaluated based on revenue and profit before tax.
Consoli-
dation
Truworths Office entries Group
Rm Rm Rm Rm
2017
Total third party revenue 8 023 2 894 (5) 10 912
Third party 8 019 2 893 - 10 912
Inter-segment 4 1 (5) -
Trading expenses 2 713 1 004 (4) 3 713
Depreciation and amortisation 140 52 - 192
Employment costs 722 346 - 1 068
Occupancy costs 738 397 - 1 135
Trade receivable costs 653 - - 653
Other operating costs 460 209 (4) 665
Interest received 713 - - 713
Finance costs 118 15 - 133
Profit for the period 1 436 220 - 1 656
Profit before tax 2 005 278 - 2 283
Tax expense (569) (58) - (627)
Segment assets 14 328 5 754 (3 460)* 16 622
Segment liabilities 3 846 2 390 - 6 236
Capital expenditure 195 31 - 226
Other segmental information
Gross margin (%) 55.5 44.7 - 52.4
Trading margin (%) 19.7 10.1 - 16.9
Operating margin (%) 29.7 10.1 - 24.0
Inventory turn# (times) 5.7 3.9 - 4.9
Account:cash sales mix (%) 69:31 0:100 - 50:50
2016
Total third party revenue 8 016 2 905 (1) 10 920
Third party 8 015 2 905 - 10 920
Inter-segment 1 - (1) -
Trading expenses 2 665 1 001 (1) 3 665
Depreciation and amortisation 141 58 - 199
Employment costs 713 349 - 1 062
Occupancy costs 677 402 - 1 079
Trade receivable costs 720 1 - 721
Other operating costs 414 191 (1) 604
Interest received 718 - - 718
Finance costs 121 24 - 145
Profit for the period 1 446 261 - 1 707
Profit before tax 2 020 332 - 2 352
Tax expense (574) (71) - (645)
Segment assets 15 027 6 287 (3 460)* 17 854
Segment liabilities 5 188 3 226 - 8 414
Capital expenditure 223 38 - 261
Other segmental information
Gross margin (%) 55.0 46.6 - 52.6
Trading margin (%) 19.8 12.2 - 17.6
Operating margin (%) 30.0 12.3 - 24.9
Inventory turn# (times) 5.4 3.6 - 4.6
Account:cash sales mix (%) 69:31 0:100 - 50:50
* Elimination of investment in Office.
# Annualised.
2017 2016
Contribution Contribution
to revenue to revenue
Rm % Rm %
Third party revenue
South Africa 7 732 70.9 7 728 70.8
United Kingdom 2 596 23.8 2 609 23.9
Germany 152 1.4 151 1.4
Namibia 117 1.1 122 1.1
Republic of Ireland 116 1.1 104 1.0
Botswana 60 0.5 54 0.5
Swaziland 51 0.5 50 0.5
Zambia 17 0.2 16 0.1
Rest of Europe 14 0.1 14 0.1
Mauritius 13 0.1 12 0.1
Lesotho 12 0.1 10 0.1
United States 9 0.1 15 0.1
Ghana 8 0.1 12 0.1
Kenya 6 -* 5 -*
Middle East and Asia 3 -* 7 0.1
Australia 3 -* 5 -*
Franchise sales - Kenya 3 -* 6 0.1
Total third party revenue 10 912 100 10 920 100
* Zero due to rounding.
31 Dec 25 Dec 2 Jul
2017 2016 2017
Unaudited Unaudited Audited
Rm Rm Rm
10 CAPITAL COMMITMENTS
Capital expenditure authorised but not contracted:
Store renovation and development 258 189 431
Computer software and infrastructure 104 71 132
Buildings 33 27 39
Head office refurbishment 6 6 23
Distribution facilities 3 96 6
Motor vehicles 2 2 5
Total capital commitments 406 391 636
The capital commitments will be financed from cash generated from operations and available cash
resources and are expected to be incurred in the remainder of the 2018 reporting period.
11 EVENTS AFTER THE END OF THE REPORTING PERIOD
No event, material to the understanding of this interim report, has occurred between the end
of the interim period and the date of approval.
12 SEASONALITY
Historically retail sales in the first half of the financial period have exceeded those of the
second half, because of the inclusion in the former of Black Friday and the Christmas trading
period. For the 2017 financial period, the Group's first half retail sales was 57% of annual
retail sales on a 52-week basis. This percentage is based on only one year of Group retail
sales, as Office has only been consolidated for one full reporting period.
13 RELATED PARTY TRANSACTIONS
Related party transactions similar to those disclosed in the Group's annual financial
statements for the period ended 2 July 2017 took place during the interim period.
14 IMPACT OF THE 53rd WEEK IN 2017 ON 2018 INTERIM FINANCIAL REPORTING
In line with the practice generally prevailing in the South African retail industry, the Group
manages its internal accounting and retail operations in accordance with a retail calendar,
which treats each financial year as an exact 52-week period. This treatment effectively results
in the "loss" of a day (or two in a leap year) per calendar year. These days are brought to
account every four to seven years by including a 53rd week in the financial reporting calendar.
Due to the inclusion of a 53rd week in the 2017 financial period, the first 26 weeks of the
current period are not comparable to the first 26 weeks of the prior period in terms of dates,
and in the case of the Truworths business unit (being the Group, excluding Office), also the
timing of the end-of-winter-season sale.
Although the Group has reported comparative financial results for the 26 weeks to 25 December 2016,
it is useful and good governance to also report information for the directly corresponding
26-week prior period ended 1 January 2017, in order to facilitate comparisons against such
comparable prior period results. These adjustments are not expected to have a continuing effect
as they will only occur in every 53-week period.
The preparation of the unaudited, comparable 26-week prior period financial information is the
responsibility of the directors. The table below illustrates how the current period results
compare to the directly corresponding 26-week prior period (i.e. 4 July 2016 to 1 January 2017),
by excluding the results of week 1 and including those of week 27 of the prior period.
The unaudited, comparable 26-week prior period information for the period ended 1 January 2017
has been prepared for illustrative purposes only, to indicate how the actual unaudited interim
results of the Group for the current period compare to such information and, because of its
nature, may not fairly represent the Group's financial position, changes in equity, results of
operations or cash flows of the prior period.
Statements of comprehensive income
26 weeks 26 weeks 26 weeks
to 31 Dec to 25 Dec to 1 Jan Change Change
2017 2016 2017 on prior on prior
Unaudited Unaudited 1st week 27th week Unaudited period period
(As adjust- adjust- comparable reported comparable
reported) ments ments weeks 26 weeks 26 weeks
Rm Rm Rm Rm Rm % %
Sale of merchandise 10 048 10 036 (486) 429 9 979 - 1
Retail sales (refer below) 10 289 10 246 (486) 429 10 189 - 1
Accounting adjustments/other sales (241) (210) (210) 15 15
Cost of sales (4 783) (4 758) 227 (208) (4 739) 1 1
Gross profit 5 265 5 278 (259) 221 5 240 - -
Other income 151 156 156 (3) (3)
Trading expenses (3 713) (3 665) - - (3 665) 1 1
Depreciation and amortisation (192) (199) (199) (4) (4)
Employment costs (1 068) (1 062) (1 062) 1 1
Occupancy costs (1 135) (1 079) (1 079) 5 5
Trade receivable costs (653) (721) (721) (9) (9)
Other operating costs (665) (604) (604) 10 10
Trading profit 1 703 1 769 (259) 221 1 731 (4) (2)
Interest received 713 718 718 (1) (1)
Dividends received - 10 10 (100) (100)
Operating profit 2 416 2 497 (259) 221 2 459 (3) (2)
Finance costs (133) (145) (145) (8) (8)
Profit before tax 2 283 2 352 (259) 221 2 314 (3) (1)
Tax expense (627) (645) 70 (57) (632) (3) (1)
Profit for the period 1 656 1 707 (189) 164 1 682 (3) (2)
Attributable to:
Equity holders of the company 1 632 1 678 (185) 157 1 650 (3) (1)
Holders of the non-controlling
interest 24 29 (4) 7 32 (17) (25)
Profit for the period 1 656 1 707 (189) 164 1 682 (3) (2)
Basic and headline earnings
per share (cents) 379.8 392.6 (43.3) 36.7 386.1 (3) (2)
Diluted basic and headline
earnings per share (cents) 379.3 391.9 (43.2) 36.7 385.3 (3) (2)
Weighted average number of shares
in issue (millions) 429.7 427.4 427.4
Diluted weighted average number of
shares in issue (millions) 430.3 428.2 428.2
Key ratios
Gross margin (%) 52.4 52.6 52.5
Trading expenses to sale of
merchandise (%) 37.0 36.5 36.7
Trading margin (%) 16.9 17.6 17.3
Operating margin (%) 24.0 24.9 24.6
Retail sales
Truworths (Rm) 7 441 7 387 (381) 254 7 260 1 2
Truworths ladieswear (Rm) 2 066 2 144 (129) 79 2 094 (4) (1)
Truworths menswear (Rm) 2 070 2 052 (104) 73 2 021 1 2
Identity (Rm) 1 189 1 193 (62) 37 1 168 - 2
Truworths designer emporium (Rm) 780 790 (39) 32 783 (1) -
Truworths kids emporium (Rm) 630 585 (24) 11 572 8 10
Other (Rm) 706 623 (23) 22 622 13 14
Office (Rm) 2 848 2 859 (105) 175 2 929 - (3)
Group retail sales (Rm) 10 289 10 246 (486) 429 10 189 - 1
Office (£m) 162 159 (6) 10 163 2 (1)
Notes:
1 The accounting policies and methods of computation applied in preparing the unaudited
results for the 26 weeks ended 31 December 2017, which results have been prepared in terms
of IFRS, have been used in preparing the unaudited information for the comparable 26 weeks
ended 1 January 2017.
2 The information contained in the "26 weeks to 31 Dec 2017" and "26 weeks to 25 Dec 2016"
columns have been extracted without adjustment from the published, unaudited results for
the respective 26-week periods.
3 The amounts in the "1st week adjustments" and "27th week adjustments" columns relate to
retail sales, the related cost of sales (calculated with reference to the gross profit margin
for the 26-week period ended 25 December 2016), and tax expense (calculated with reference
to the actual tax rate for the 26-week period ended 25 December 2016) for the one-week periods
from 27 June 2016 to 3 July 2016 and 26 December 2016 to 1 January 2017 respectively,
together with the resultant gross profit, trading profit, operating profit, profit before tax
and profit for the said one-week periods. The trading expenses have not been adjusted,
as these are typically incurred on a monthly basis, and it was therefore assumed that the
expenses for the one-week periods from 27 June 2016 to 3 July 2016 and 26 December 2016
to 1 January 2017 respectively are similar, notwithstanding that these periods are
six months apart.
4 The relevant amounts for the one-week periods from 27 June 2016 to 3 July 2016 and
26 December 2016 to 1 January 2017 have been extracted from the Group's unaudited
accounting records.
5 The "1st week adjustments" and "27th week adjustments" columns, in the opinion of the
directors, fairly reflect the results of the one-week periods from 27 June 2016 to
3 July 2016 and 26 December 2016 to 1 January 2017 respectively.
6 The calculation of earnings per share and headline earnings per share for the comparable
26-week prior period is based on the weighted average number of shares in issue over
that period.
7 The comparable 26-week prior period information has neither been reviewed nor reported on
by the Group's external auditor.
ADMINISTATION
Truworths International Ltd
Registration number 1944/017491/06
Tax reference number 9875/145/71/7
JSE code: TRU
NSX code: TRW
ISIN: ZAE000028296
Company secretary
Chris Durham, FCIS, PG Dip. Adv. Co Law (UCT)
Registered office
No. 1 Mostert Street, Cape Town, 8001, South Africa
Postal address
PO Box 600, Cape Town, 8000, South Africa
Contact details
Tel: +27 (21) 460 7911 Telefax: +27 (21) 460 7132
www.truworths.co.za
www.office.co.uk
Principal bankers
The Standard Bank of South Africa Ltd
Lloyds Bank plc
Auditors
Ernst & Young Inc.
Attorneys
Bernadt Vukic Potash and Getz
Edward Nathan Sonnenbergs
Spoor & Fisher
Webber Wentzel
Bowman Gilfillan
Shoosmiths
Sponsor in South Africa
One Capital Sponsor Services (Pty) Ltd
Sponsor in Namibia
Merchantec Capital Namibia (Pty) Ltd
Transfer secretaries
In South Africa
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107, South Africa
Tel: +27 (11) 370 5000 Telefax: +27 (11) 688 5248
www.computershare.com
In Namibia
Transfer Secretaries (Pty) Ltd
Robert Mugabe Avenue No. 4
Windhoek, Namibia
PO Box 2401, Windhoek, Namibia
Tel: +264 (61) 22 7647 Telefax: +264 (61) 24 8531
Investor relations
David Pfaff (CFO)
Tel: +27 (21) 460 7956
Graeme Lillie (Tier 1 Investor Relations)
Tel: +27 (21) 702 3102
Directors
H Saven (Chairman)§‡, MS Mark (CEO)*, DB Pfaff (CFO)*, DN Dare*, RG Dow§‡, JHW Hawinkels§‡,
M Makanjee§‡, CT Ndlovu§‡, RJA Sparks§‡, AJ Taylor§‡ and MA Thompson§‡
* Executive § Non-executive ‡ Independent
Date: 22/02/2018 05:12:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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